Wiggle room for big firms under new health care coverage rule

Ricardo Alonso-Zaldivar/The Associated Press

February 12, 2014 9:51:37 AM

WASHINGTON -- Big retail stores, hotels, restaurants and other firms with lots of low-wage and part-time workers are among the main beneficiaries of the Obama administration's latest tweak to health care rules.

Companies with 100 or more workers will be able to avoid the biggest of two potential employer penalties in the Affordable Care Act by offering coverage to 70 percent of their full-timers.

That target is considerably easier to hit than the administration's previous requirement of 95 percent, but the wiggle room is only good for next year.

"It will be very helpful to employers," said Bill O'Malley, a tax expert with McGladrey, a consulting firm focused on medium-size businesses. "This gives them a bit of a transition period to begin expanding coverage on a gradual basis. There would be some cost savings to employers who otherwise were nowhere near meeting the standard for 2015."

It means that big companies, not only medium-sized firms, can benefit from the new employer coverage rules that the Treasury Department announced Monday. Under those rules, companies with 50 to 99 workers were given an extra year, until 2016, to comply with the health care law's requirement to offer coverage.

"I think it's pretty significant because the vast majority of the workforce is in large firms," said Larry Levitt, a health insurance expert with the nonpartisan Kaiser Family Foundation. "It affects a much bigger swath of the economy."

President Barack Obama's health care law requires companies with 50 or more employees working 30 or more hours a week to offer them suitable coverage or pay fines.

The so-called employer mandate was written into the law as a guardrail to discourage employers from shifting workers into taxpayer-subsidized coverage. Small businesses with fewer than 50 workers are exempt. And more than 90 percent of the larger firms already offer health care.

But even if it directly impacts a relatively small share of companies, the mandate still represents a major new government requirement on businesses. At a time when the economy remains weak, implementation has been fraught with political overtones. The requirement was originally supposed to take effect in 2014, but last summer the White House delayed it for a year. Then came this week's additional delay for medium-size companies.

Treasury officials say the lower coverage standard for bigger companies should help employers struggling with the health care law's definition of a full-time worker as someone who averages 30 hours a week. Many firms have traditionally set a 35-hour week as the threshold for offering health care benefits.

To determine if an employer is subject to the mandate, the government doesn't actually count full-time workers. It uses a complicated formula that also averages part-timers' hours and converts them to the equivalent of full-time workers.

The next step is to determine how many workers averaging 30 or more weekly hours are being offered coverage.

Say a franchise owner with two dozen fast-food restaurants in a state is already providing coverage to 50 percent of its workers averaging 30 hours. A 70 percent threshold would be less onerous than expanding the offer to 95 percent of employees.

The Treasury Department says it works out to an easier path for companies already on the way.

Mark Holloway, a benefits expert with the Lockton consulting company, says that will help some companies avoid what he calls the law's "nuclear penalty," a $2,000-per-employee fine levied across a company's entire workforce, after adjustments.

But it would still leave in place a second, lesser penalty if workers at the company obtain subsidized insurance under the law.

"I would say it's good news, but it's not a panacea for companies," said Holloway.

"I think people have realized the law is here to stay and we are going to have to live with it," he added. "This is fairly good transition relief that pushed some things off, but employers are still going to have to figure out how to navigate this stuff."